More important data tonight from down under as AUD crosses likely to remain volatile.


MAJOR HEADLINES – PREVIOUS SESSION

  • New Zealand Q3 Private Wages Exc. Overtime rose 0.4% QoQ vs. 0.3% expected

  •  New Zealand Q3 Average Hourly Earnings rose 1.7% QoQ vs. 0.5% expected

  •  Australia's RBA raised the Cash Target 25 bps to 3.50% as expected

  •  Norway Oct. PMI fell to 45.8 vs. 49.0 expected and 47.1 in Sep.

  • UK Oct. Construction PMI fell to 46.2 vs. 47.2 expected and 46.7 in Sep.

THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • US Sep. Factory Orders (1500)

  • US Weekly API Crude Oil and Product Inventories (2130)

  • US Weekly ABC Consumer Confidence (2200)

  • Australia AiG Performance of Services Index (2230)

  •  UK Oct. Nationwide Consumer Confidence (0001)

  • UK Oct. BRC Shop Price Index (0001)

  • Australia Sep. Retail Sales (0030)

  •  Australia Sep. Building Approvals (0030)

  • Japan BoJ's Shirakawa to Speak (0230) )


Market Comments:

The Australian dollar weakened further in the European session today, as did most currencies versus both the greenback and the Yen on further weakness in asset markets in Europe. Besides our comments earlier on the RBA's rate decision (with the AUD weakening a least partially due to the disappointed minority looking for 50 bps), it's perhaps important to also note the RBA's mention of the currency's strong levels as having an effect on the inflation outlook, meaning that Aussie strength in and of itself is an important factor in assessing monetary policy. ("The board noted that the rise in the exchange rate is likely to constrain output in the tradeables sector and dampen price pressures.") These comments lowered the forward view somewhat on the trajectory for further rate hikes. If equities continue to trade sideways to down, we could see further pressure on the AUD, which has been overdue for a reasonable correction.

GBP: steady as she goes

RBS had to be thrown another 25.5 billion pounds of state funds to keep it a going concern, making it now the world's most expensive bailout, with Citigroup moving to a second place. Someone made the appropriate joke about the likes of RBS and Citigroup as not only too big to fail, but "too big to exist". The pound had been sharply weaker yesterday and into today on the latest bailout news, but has come storming back as the theme of correlation with the other lower yielders seems to be taking the upper hand at the moment. EURGBP reversed sharply lower after a new four-day high today, though the greenback is maintaining the upper hand, with GBPUSD down testing the 1.6250 support level. The market is likely waiting to see the BoE's position on QE measures this Thursday before moving all of its chips onto the table.

Looking ahead

There is little of note on tap for the US session, with only weekly API crude oil inventories and the weekly confidence (or lack thereof) number expected to rise a bit from last week's 15-week low. The Asian session is a bit more interesting, with the Retail Sales number and the Services survey on tap. One wonders if the USD can simply continue to power ahead with the FOMC up for tomorrow night. It is interesting to note that the EURUSD sell-off was halted right at the 55-day moving average at around 1.4625 today. It hasn't closed convincingly below that level since April. The ISM non-manufacturing survey and US ADP payrolls report are also on tap for tomorrow, so the market may show little further directional conviction today barring unforeseen news.

Chart: GBPUSD

GBPUSD was down testing close to the two-week+ low at 1.6250 today. This area also coincides with the 21- and 55-day moving averages and serves as the trigger for a larger downside view if a break holds. It is always interesting when the market is trading close to key levels ahead of big events, like FOMC tomorrow and BoE Thursday (just to name the two biggies) If support survives for now, the focus reverts to perhaps 1.6500 as an upside swing level and then the 1.6700 area.